FAA Small Business Conference

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FAA Small Business Conference

• Year in Review

DBE Panel
Michael Freilich
July 18, 2007
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Overview

• Part 26
• Part 23

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Part 26 Western States Paving

• 9th Circuit panel held that DOTs DBE contracting
  regulations (49 CFR Part 26) were constitutional,
  but found that the Washington State DOT DBE
  program was unconstitutional as applied.
• The court concluded that Washington State DOTs
  DBE program was not narrowly tailored because the
  evidence of discrimination supporting its
  application was inadequate, including that
  Washington State DOT had not conducted
  statistical studies to establish the existence of
  discrimination in the highway contracting
  industry that were completed or valid.

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Part 26 Western States

• Guidance applicable only to recipients in the 9th
  Circuit for Part 26 DBE Programs
• Have evidence to support Race-Conscious Goal or
• Submit Race-Neutral Program and
• Gather necessary evidence, may include disparity
  or availability study and
• Develop action plan for a disparity/availability
  study

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Part 26 Study Reimbursement

• DOTs Western States guidance explains that the
  costs of conducting disparity studies are
  reimbursable from Federal program funds, subject
  to the availability of those funds.
• For FAA recipients, disparity studies are
  generally funded as a planning study, and have
  the same eligibility and performance requirements
  of other planning studies, although their
  priority for reimbursement is relatively low.
• However, for recipients in 9th Circuit, if a
  disparity study is required in order to complete
  allowable AIP project work, then the study is
  considered an allowable cost of the project and
  has the same priority for reimbursement as the
  project.

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Part 26 Study Reimbursement

• Nevertheless, USDOT, including FAA, anticipates
  that each State DOT would conduct a state-wide
  study, which should be coordinated with Airport
  and Transit recipients to account for their
  particular DBE participants.
• For large and medium primary hub airports, the
  grant covers 75 percent of eligible costs (or 80
  percent for noise program implementation). For
  small primary, reliever, and general aviation
  airports, the grant covers 95 percent of eligible
  costs.
• For further information, contact your FAA
  Airports District Office (see http//www.faa.gov/a
  bout/office_org/headquarters_offices/arp/regional_
  offices/media/contact_info_regional_airports_offic
  es.pdf).

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Part 26 Northern Contracting

• Northern Contracting, Inc. v. State of Illinois,
  et al., January 8, 2007
• Northern Contracting challenged IDOTs DBE
  Program in Federal District Court sued USDOT
• claiming it was unconstitutional

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Part 26 Northern Contracting

• USDOT granted summary judgment in District Court
• Federal government demonstrated compelling
  interest ending effects of discrimination
• 49 CFR Part 26 narrowly tailored
• After trial, IDOTs program was found to be
  narrowly tailored to the compelling interest
• Northern Contracting appealed to the 7th Circuit

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Part 26 Northern Contracting

• 7th Circuit held that IDOTs DBE program was
  narrowly tailored
• What does this mean?
• In all cases, Adarand, Western States Paving,
  Sherbrook and Northern Contracting, USDOTs DBE
  Program has been upheld and found constitutional

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Part 23 - Overview

• Guidance
• Overview Memo
• Overview Pamphlet
• Sample Program
• Joint Venture
• E-training
• PNW Q A
• SNPRM
• Business Size

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Part 23 Sample Program

• FAA/DOT has prepared this sample program to help
  sponsors comply with 49 CFR Part 23, the DOT
  Airport Concession Disadvantaged Business
  Enterprise (ACDBE) rule.

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Part 23 Sample Program

• This sample program supersedes guidance issued by
  the Office of Civil Rights under the former Part
  23
• Generally follows Part 26
• Use of the sample program is not required
• Sponsors may customize the sample program to meet
  their needs

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Part 23 Joint Venture Guidance

• Issue of how to credit the participation of DBE
  joint venture partners.
• Stakeholder listening session (completed), FAA
  draft (nearly complete), Conference input,
  Another Stakeholder meeting, Final Guidance

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Part 23 E-Training

• The product will likely be in a DVD format,
  including video interviews, a powerpoint
  presentation, and reference materials.
• Topics will include a welcome statement, program
  overview, legal overview, and comments from an
  airport, ACDBE prime, ACDBE sub, and car rental
  representative.

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Part 23 3rd Exclusion - PNW Q A

• Only assets supporting obligations for which the
  individual is currently liable, which are
  properly documented, and for which his or her
  personal assets are encumbered, should be counted
  toward this exclusion.
• The initiation or expansion of a concession
  concerning which an owner seeks this exclusion
  should be real and present rather than a
  possibility that is speculative or well into the
  future.
• For example, assets supporting a loan or line of
  credit obtained today for a projected expansion
  of a concession three years from now would not be
  a reasonable basis for excluding the assets from
  todays PNW calculation.
• Assets eligible for this exclusion from the PNW
  calculation are properly excluded from an owners
  PNW calculation regardless of the location of
  concession for which the financing in question
  was arranged.

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Part 23 3rd Exclusion - PNW Q A

• Since an ACDBE applicant bears the burden of
  demonstrating its eligibility, it is reasonable
  for recipients to request all supporting
  documentation for each financial obligation
  claimed by the applicant, including loan
  agreements, supporting lien and/or letter of
  credit documents, and specification of the assets
  used to secure a loan or line of credit.
• Recipients should pay particular attention to the
  terms of a financial obligation, determine the
  extent to which the individual owner, as distinct
  from a corporation or other party, is obligated
  to repay, or is repaying, the obligation.
• The recipient should make appropriate inquiries
  into whether there are any additional borrowers
  or other factors that may affect the size or
  duration of the individual owners debt.

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Part 23 SNPRM - Topics

• National Car Rental Goal
• Anti-Fraud
• Business Size
• Etc.

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Part 23 SNPRM Car Rental Goal

• Proposed revision to the Part 23 regulations, to
  allow national car rental companies to set DBE
  goals rather than each individual airport. This
  is a concept borrowed from Part 26 with regard to
  transit vehicle manufacturers.
• 1st Stakeholder Meeting, Industry Meeting,
  Concept Paper, Bullet Points, 2nd Stakeholder
  Meeting, Possible Rulemaking

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Business Size

• The DBE program is intended to level the playing
  field for socially and economically disadvantaged
  firms so that they can compete fairly for federal
  contracting (highway, transit, and airport) and
  concessions (airport only) opportunities at a
  level that would be expected in the absence of
  the effects of discrimination.

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Business Size

• To meet constitutional standards, race and gender
  based programs must be narrowly tailored to meet
  a compelling governmental interest.
• One element of a narrowly tailored DBE program is
  that a DBE business must be small, as measured by
  gross receipts or number of employees.

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Business Size

• Existing business size standards have not been
  adjusted for inflation since 1992.
• In March 2005 DOT issued a revised ACDBE rule to
  incorporate statutory changes and constitutional
  standards.
• At the same time DOT issued a notice asking for
  comments on business size standards and some
  other issues.

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Business Size

• In response, FAA worked with DOT to make
  inflationary adjustments to the business size for
  DBEs and ACDBEs.
• The purpose of these changes is to ensure that
  the opportunities for small businesses to
  participate in the DBE and ACDBE program remains
  unchanged after taking inflation into account.

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Business Size

• A final rule, issued by DOT on April 2, 2007
  (effective May 2, 2007), makes inflationary
  adjustments for ACDBE and DBE size standards, and
  provides for similar adjustments to the ACDBE
  size standard every two years, and to the DBE
  size standard every year.
• The rule also makes other minor changes and
  corrections regarding guidance and definitions.

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Business Size Part 23 Changes

• Most ACDBE businesses - 47.78 million gross
  receipts averaged over previous 3 fiscal years
  (previously 30 million)
• ACDBE Banks and Financial Institutions - 750
  million in assets (previously 275 million)
• Car rental ACDBE businesses - 63.71 million
  gross receipts averaged over previous 3 fiscal
  years (previously 40 million)
• Pay Telephone ACDBE businesses - 1,500 employees
  (no change from previous standard)
• ACDBE Automobile Dealers - 200 employees (no
  previous standard)

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Business Size Part 26 Change

• DBE businesses
• 20.41 million gross receipts averaged over
  previous 3 fiscal years
• (previously 19.57 million)

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Questions
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The End Thank You!!